CORRECT: China export weakness to continue as global economy struggles

(Correcting China's September trade surplus figure.)

(Alliance News) - A brutal domestic Covid-19 policy and a weakening global economy will hurt China's trade fortunes going forward, analysts at Pantheon Macroeconomics said on Monday.

The analysis came after the latest reading of Chinese trade came short of expectations. China's exports fell in October, the first such decline since mid-2020.

Exports declined 0.3% year-on-year in October, according to the General Administration of Customs, swinging from a rise of 5.7% in September.

Year-on-year, imports were down 0.7% in October, after September's 0.3% growth.

It meant China's trade surplus widened to around USD85.2 billion in October from USD84.7 billion in September. However, this fell short of FXStreet cited consensus of USD96.0 billion.

"Most major export sectors are experiencing falling shipments, as global demand weakens. Exports of clothing, computers, healthcare products, furniture, lights and toys fell in year-over-year terms," analysts at Pantheon Macroeconomics commented.

"We expect export growth to remain weak, due to slowing global growth as borrowing costs rise. Import growth will [be] pulled down by lacklustre domestic demand, as property construction is still feeble and China keeps the zero-Covid policy in place until at least March 2023."

Dutch bank ING said the Golden Week holiday was not responsible for the weaker trade data.

"We can blame the Golden Week holiday in China for the monthly contraction in exports and imports but the holiday does not have any seasonal effect on the year-on-year data. As such, the contraction in international trade activity in October stems from other factors," ING said.

"Covid cases started to climb in October but have affected factory activity only slightly, and there were no cases found in ports. So we can rule out shipment delays as a factor in the contraction. Inflation in Europe and the US continued to be high, which could be a factor. Slower imports of electronic products paint a similar picture. If this is the reason for the contraction in China's international trade in October then we should expect the contraction to continue as our economists covering Europe and the US project a recession in these two economies."

A market rally on Friday was fuelled by hope that China will soon end its zero-Covid policy. Those hopes were doused over the weekend, after a key health official ruled out such a move.

Markets should be careful what they wish for, Rabobank cautioned. It warned that if the policy was to end, it could fuel global inflation further.

Rabobank commented: "Lo and behold, China held a press conference on Saturday and shot down the idea of an end to Covid Zero. That also shoots down the recent bullish trend, and the credibility of many 'China watchers'; and it shows how susceptible fools are to shills. I also reiterate if China reopens in 2023, then we will get a huge surge in supply-side inflation – in which case the Fed is hiking even more."

Apple Inc may soon count the cost of virus disruption in China. The US technology company warned of an iPhone production hit.

Apple said Covid restrictions have "temporarily impacted" production at the world's largest iPhone factory in central China, warning that customers will now face longer wait times ahead of the holiday season.

Foxconn, Apple's principal subcontractor, locked down its massive factory in Zhengzhou last month after a spike in infections – in line with China's zero-Covid policy.

By Eric Cunha; [email protected]

Copyright 2022 Alliance News Limited. All Rights Reserved.